For more than 30 years, Federal law has required lenders to provide two different
disclosure forms to consumers applying for a mortgage. The law also has generally
required two different forms at or shortly before closing on the loan. Two different
Federal agencies developed these forms separately, under two Federal statutes:
the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of
1974 (RESPA). The information on these forms is overlapping and the language is
inconsistent. Not surprisingly, consumers often find the forms confusing. It is also
not surprising that lenders and settlement agents find the forms burdensome to
provide and explain.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act) directs the Consumer Financial Protection Bureau (the Bureau) to integrate the
mortgage loan disclosures under TILA and RESPA sections 4 and 5. Section 1032(f)
of the Dodd-Frank Act mandated that the Bureau propose for public comment
rules and model disclosures that integrate the TILA and RESPA disclosures by July
21, 2012. The Bureau satisfied this statutory mandate and issued proposed rules
and forms on July 9, 2012. To accomplish this, the Bureau engaged in extensive
consumer and industry research, analysis of public comment, and public outreach
for more than a year. After issuing the proposal, the Bureau conducted a largescale
quantitative study of its integrated disclosures with approximately 850
consumers, which concluded that the Bureau’s integrated disclosures had on
average statistically significant better performance than the current disclosures
under TILA and RESPA. The Bureau has now finalized a rule with new, integrated
disclosures (TILA-RESPA rule).1 The TILA-RESPA rule also provides a detailed
explanation of how the forms should be filled out and used.
The first new form (the Loan Estimate) is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. The Loan Estimate must be provided to consumers no later than three business days after they submit a loan application. The second form (the Closing Disclosure) is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. The Closing Disclosure must be provided to consumers three business days before they close on the loan.
The forms use clear language and design to make it easier for consumers to locate key information, such as interest rate, monthly payments, and costs to close the loan. The forms also provide more information to help consumers decide whether they can afford the loan and to compare the cost of different loan offers, including the cost of the loans over time.
The Loan Estimate and Closing Disclosure must be used for most closedend consumer mortgages. Home equity lines of credit, reverse mortgages, or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land) must continue to use current disclosure forms required by TILA and RESPA separately. The TILA-RESPA rule does not apply to loans made by persons who are not considered “creditors” because they make five or fewer mortgages as year.
Generally, the Loan Estimate and Closing Disclosure require the disclosure of categories of information that will vary due to the type of loan, the payment schedule of the loan, the fees charged, the terms of the transaction, and State law provisions. The extent of these variations cannot be shown on a single, static example. This Guide includes most of the requirements concerning completing the Loan Estimate and Closing Disclosure. However, this Guide may not illustrate all of the permutations of the information required or omitted from the Loan Estimate or Closing Disclosure for any particular transaction. Only the TILA-RESPA rule and its official interpretations can provide complete and definitive information regarding its requirements.
|